Samantha and her son, Brent, are cash basis taxpayers.Samantha gave Brent a corporate bond with a face amount and fair market value of $10,000.On the date of the gift, March 31, 2019, the accrued interest on the bond was
$100.On December 31, 2019, Brent collected $400 interest on the bond.Brent must include in gross income the
$300 interest earned after the date of the gift.

Question

Quizplus · Accepted Answer

As a cash basis taxpayer, Brent must recognize income when he receives it. The $100 of accrued interest is not included in his income because it was earned prior to the gift. However, the $400 interest collected after the gift date is included in his income and he must pay tax on it. Therefore, he must include the $300 of interest earned after the gift in his gross income.

Samantha and Her Son, Brent, Are Cash Basis Taxpayers